Shrinking middle class, income inequality threaten the fundamentals of our financial system

The ongoing debate over the role of government, spending and the national debt illustrates more than we need to know about our current political system.One doesn’t need to be clairvoyant to see the impact of the ideological battle on our economy in regards to employment, long-term planning, investor confidence and our battered national psyche. It is clear that the capital structure of our economy is flawed. It is vital to keep perspective and remember that this country is modestly more solvent than other countries in distress, such as Greece, Spain and Ireland. Still, I believe the shrinking of this country’s middle class and the rise of income inequality threaten to undermine the very capitalistic fundamentals on which we depend.To paraphrase the great Irish poet William Butler Yeats, “if the center cannot hold,” the next financial crisis may not be a picnic. I believe the baby-boom generation (to which I belong) is leaving a debt-soaked legacy to our children and grandchildren. We have avoided making tough choices. I have a wise mentor, a member of the so-called “Greatest Generation” who survived the Great Depression and landed on Normandy in World War II. Last fall he told me that his generation made a serious miscalculation by sheltering and pampering the boomer generation in an effort to give them more and to protect them.I believe the result is that one generation was trained and encouraged in too many ways to feel highly entitled — and gave way to the next generation that feels itself even more entitled.Needed: a clear roadmapWhat we lost is what my mentor had — a higher sense of responsibility and self-reliance when it comes to taking hold of our individual financial futures. Easy credit offered a lax alternative to financial discipline — old-fashioned savings and long-term planning. In the process, I believe we created serious fault lines that could undermine the obligations between one generation and future generations.You may see it in the political debate today over taxes in this country or in the reaction against austerity measures in countries such as Portugal, Ireland, Iceland, Greece and Spain.From a financial adviser’s perspective, it’s one thing to talk about these obligations but another to actually make wise and informed decisions about what to do. I believe policymakers acted without a clear roadmap about what these obligations could mean for our financial future. For example, there is little debate that Social Security and Medicare were well-intentioned programs that grew and grew. But we live in vastly different times. People live longer and consume far more health care than ever before. In 2003, Congress established a far-reaching prescription drug program for seniors but didn’t provide a funding mechanism to pay for it. The result has been increased government spending of hundreds of billions of dollars annually that have helped build up the $14.3 trillion national debt. We are learning again the hard way that there is no proverbial free lunch. The formidable question facing us is – how will we pay for it?Tom Sedoric is managing director-investments of the Sedoric Group of Wells Fargo Advisors in Portsmouth. The views expressed by Sedoric are his own and do not necessarily reflect the opinion of Wells Fargo Advisors or its affiliates.